Kinross Gold Sees Big Overheads

In 2008 second quarter, Kinross Gold Corp.’s (KGC) net earnings of $0.09 per diluted share remained flat compared to $0.08 per diluted share in the same period last year. Revenue was up 3% year over year to $298.7 million. Gold production was 406,032 equivalent ounces versus 439,783 ounces last year. The year-over-year decrease in production was primarily due to the asset swap transaction with Goldcorp, as well as the impact of lower grades mined at Fort Knox, Round Mountain, and La Coipa.

Higher gold prices bode well for Kinross’ topline growth. KGC has received approval for a huge investment in the Paracatu mine expansion, which is expected to start production in September. The various exploration and expansion activities undertaken will enhance production levels. The Bema acquisition will result in various synergies. Steady improvements in the leaching process and rising mill throughput are driving results at the Round Mountain facility. At the Maricunga mine, we believe enhanced capacity will boost production volume.

The company’s production is expected to go up to 1.8-1.9 million ounces of gold in 2008 and to 2.4-2.5 million gold equivalent ounces in 2009 driven by increased production from its two new projects Kupol and Buckhorn, apart from Paracatu.

However, declining production levels at some of the existing operations and higher mining, energy, and administrative overhead costs are likely to constrain margin expansion. Consequently, we reiterate our Hold recommendation on shares of KGC, with a six-month target price of $14.50.

Read the full analyst report on KGC

Read the full analyst report on KGC